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It's all about paper versus physical metal


Gold is not behaving like it traditionally and historically has.

Gold $432 Silver $6.72 Wednesday September 1, 10pm Sydney

G'day. Gold got slapped pretty nastily in the paper markets yesterday although the physical market has lifted prices steadily throughout the overnight U.S. session, as has been the case on many occasions recently. Technical paper players versus the physical market is the main game I'm watching. The technicians and paper guys will have their moments of short-term glory but the physical market will ultimately set the levels.

There's all sorts of talk about a big fund bailing out of a large position in the gold futures, which could well be true looking at yesterday's volumes, but again, it's just a paper move, IMO. The physical market hasn't blinked and quite frankly is loving these declines. I am certainly wary of further declines in price via such "fund" paper capitulations, but I contend that such declines will be very short-lived due to the physical market's strength. All declines are being met by large physical demand. There is nothing the "paper" guys can do about that! I suppose that the recent $436 support will now turn to resistance and the next support level after this $428 level is back at $422.

Gold in Aussie terms hardly moved a dollar yesterday. The same can be said of some other currencies. Gold priced in dollars gets the headlines but the real story is gold priced in other currencies and commodities! Gold priced in Oil is so bloody cheap it isn't even funny. Gold is not behaving like it traditionally and historically has. No surprise there, especially with the amount of paper derivatives that dominate the tiny 2600 tonne physical market.

Silver is hanging around and I am looking for this $6.60-65 to be tested hard. I expect it to hold around there, but it could get pretty messy and maybe we do see $6.30, for a brief period. Again it's all about paper versus physical metal.

The Amex Gold Bugs Index (HUI) copped a few but still sits around the $200 pivot level. I see that Golden Star Resources (GSS) is now some 20% off the recent $3.40 high with gold off by $10. Leverage to the gold price is why we own gold equities but that looks a little ridiculous to me!

Keep watching the Indian Rupee as it has weakened a little on concerns of higher oil prices (they are a massive importer). This makes gold a little more expensive but the paper gold price has nicely balanced the move.

Expected ranges today and we could easily see both sides hit in the one session!!!

$428-436 Gold
$6.66-6.79 Silver

Enjoy the day...


Position in gold, silver, gss, aud

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